Why are average price and average quantity used to calculate the price elasticity of demand?
What will be an ideal response?
If the average amounts weren’t used, economists would come up with different values for the elasticity of demand depending on whether they moved up or down the demand curve. The issue is whether the percentage change should be figured on the basis of price and quantity before or after the change has occurred. For example, a price rise from $10 to $15 constitutes a 50 percent change if the original price ($10) is used in figuring the percentage ($5/$10), or a 33 percent change if the price after the change ($15) is used ($5/$15). For small changes, the distinction is not important, but for large changes, it is. To avoid this confusion, economists often use this average technique.
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In the above, which figure(s) has (have) at least one point at which the slope equals zero?
A) Figure B only B) Figures A and C C) Figure D only D) Figures A, C, and D E) Figures A and D
A deficit-financed tax cut will ____ national savings and _____ private consumption
a. have no effect on; increase b. increase; decrease c. decrease; decrease d. decrease; increase
Nonprice rationing devices are required
A. because the price system does not allocate resources efficiently. B. so that prices will go back to equilibrium. C. when there are price floors but not when there are price ceilings. D. to allocate goods when there is a price ceiling.
If an American investor buys shares of stock of the German auto manufacturer BMW, the transaction
A. is registered as a debit in the current account, and it decreases private U.S. assets abroad. B. is registered as a credit in the capital account, and it increases foreign private assets in the United States. C. is registered as a debit in the capital account, and it increases private U.S. assets abroad. D. is registered as a credit in the capital account, and it decreases foreign private assets in the United States.